Global Leverage Adjustments, Uncertainty, and Country Institutional Strength

40 Pages Posted: 20 Mar 2017 Last revised: 25 May 2018

See all articles by Gonul Colak

Gonul Colak

University of Sussex ; Hanken School of Economics

Ali Gungoraydinoglu

Florida International University (FIU)

Özde Öztekin

Florida International University (FIU)

Date Written: September 14, 2017

Abstract

Using a broad range of uncertainty measures, we show that uncertainty dramatically slows down firms’ adjustments toward their optimal capital structure. At the upper bound, the estimated speed of leverage adjustments almost halves when uncertainty is high. High quality institutions (common law legal origin, more disclosure to congress and/or to the public, and higher public sector ethics) and presidential political systems offset some of the adverse effects of uncertainty on leverage adjustments. The financial crisis has altered the relationships among uncertainty, adjustment speeds, and a country’s institutions; more so for countries with weak institutions and parliamentary systems.

Suggested Citation

Colak, Gonul and Gungoraydinoglu, Ali and Öztekin, Özde, Global Leverage Adjustments, Uncertainty, and Country Institutional Strength (September 14, 2017). Journal of Financial Intermediation, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2934915 or http://dx.doi.org/10.2139/ssrn.2934915

Gonul Colak

University of Sussex ( email )

Jubilee Building
Falmer
Brighton, BN1 9SN
United Kingdom

Hanken School of Economics ( email )

P.O. Box 479
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FI-00100 Helsinki, 00100
Finland

Ali Gungoraydinoglu

Florida International University (FIU) ( email )

University Park
11200 SW 8th Street
Miami, FL 33199
United States

Özde Öztekin (Contact Author)

Florida International University (FIU) ( email )

University Park
11200 SW 8th Street
Miami, FL 33199
United States

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